Volume Explosion Sends ES Higher As Treasuries End Unchanged

30Y Treasuries rallied 14bps from high to low yield today peaking at the US equity day session open and troughing just prior to the late day vertical ramp-fest in ES (the extremely liquid e-mini S&P 500 futures contract) that managed to turn what was heading to be a mediocre day into a headline-grabbing risk-fest. Unfortunately, stocks were the only asset class enjoying this exuberance as Oil lost over 2.5% from its highs, AUDJPY and FX in general drifted lower all day and copper and silver slid after Europe's close. The huge burst in volume which ripped us back to VWAP in ES and several of the financials (as BAC was heading towards a $4 handle) was very notable and dragged ES back away from a critically risk-off performance day in CONTEXT.

The TSY curve ended practically unchanged with the short-end modestly lower in yield and the long-end very modestly higher in yield. The very notable rally and compression in 2s10s30s from the start of the US day session was a major driver (along with the general risk-off sentikent of the TSY rally for today's CONTEXT move).

ES and CONTEXT (dark blue line above) converged all day - from the 13+ point differential when we posted earlier - to as narrows as 7pts in the final hour. ES moved in our direction by 10pts or so only to give most of it back with the last minute volume spike. Risk, broadly speaking, was off all day - and even as we pointed out in the sectoral and financials performance, was lagging badly from only 1 minute after the open.

Credit underperformed equity's close to close shift massivley by completely ignoring the late-day ramp. HYG, for a change, tracked equities very closely, and held pace with equities late day surge with its own high volume ramp up to VWAP (light blue line above).

In corporate bonds, we saw net selling all day long with financials by far the most net sold (29% more buy-side sellers than buy-side buyers). HY secondary bonds were net sold - despite very strong perrformance in HY credit indices - which tracked ES most of the day. Evidently, duration risk seemed to be removed in general in both TSYs and Corps today.

All-in-all a very odd day that will make for some very sanguine headlines but from a professional's perspective, the underperformance all day along with the lack of any follow-through from any other asset-class into equity's last minute surge is worrying. Very heavy volume spikes in financial stocks along with significant net selling by bond managers is worrisome but a +3% day for ES is touigh to argue with when the margin-man comes calling. 1160 remains our HY-based relative-value view of fair S&P cash currently and with the relative outperformance of VIX and implied correlation today, it certainly didn't feel like professionals were re-risking today.

This local guy goes out in the woods one cold afternoon trying to kill some quail for dinner. Unfortunately he runs into a very aggressive bear. The bear attacks and takes the hunter's gun, snaps it over his knee then bends the hunter over a log and screws him in the ass.

Well the hunter is upset and decides to kill the bear so he goes to his local gun shop, buys a new weapon then heads back to the woods. Again, the bear attacks, breaks gun and rapes the hunter.

Determined, the hunter goes back into town, buys yet another gun and heads back to the woods.

And once again the bear attacks and breaks the gun. He bends the hunter over a log and just as he is about to rape the hunter again he whispers into the man's ear, "You're not really here for the hunting... are you?"

I don't go bear until WTI is over the $100 line. Timing has to be perfect. Versus bagholding which requires a basic cable subscription and CNBC. You've always struck me as Kramer value driven investor.

So what exactly is your definition of a "fake ramp up"? Price right now is saying "if you stand in front of me, I'm going to be the bear previous poster's story and the hunter's ass is going to be your ass". IMHO I'd wait a bit before going on the short side... let's just take a wild guess and say /ES 1220.

One really has to ask where the liquidity for any real rally is going to come from? It would be interesting to get an update from Trimtabs.

Needless to say, today seemed like groundhog day. Announce Eurozone solution on Sunday, stocks gap up....no action all day other than slow decay and then one final massive ramp job into the close to get a good headline. This is all about maintaining confidence in the markets - the question is, are the big guys just propping it up so they can safely cash out, or are they really going for all out inflation with money printing madness. Either way is bad, but it sure impacts how you position yourself.

Sure do long for the day of "free" capital markets. I'd venture to guess 75% of up moves are now pre-market ramp jobs with the rest of the day trading sideways to down. Broken markets plain and simple will evetually never end well.

For my part, a close over 1220 means I am wrong, and I need to get off my shorts. I am so baffeled by everthing else I have to assume I am ment to be. I am greatful for the speed of this rally however, if it is going to bang into the 1200-1215 resistance area, and the 50 DMA at least I can be thankful it is happening quickly, so as not to waste too much time value and increase the implied volitility of my options. Also this rate of assent cannot persist for long at this angle, won't be more than a couple of days to figure this out one way or the other.

it made no sense at all where we bounced at the end of the day today except painting the tape. yes we were very overslod on the hourly. but the gap should have closed much more like treasuries then buy. honestly, until the bernanke speaks about getting rid of these hft algo crap he shouod be boiled in oil

so we didn't drop back to the base we shouold have today, and what is going to happen tomm in the am is the stop losses will be triggered for the shorts, but then there will be a sale on es, and I expect iot to drop back to 1180 and time to reshort5 is about 1223 or so

Just meltups, nothing major, no new highs but oil extending gains again - which the market seems to not want to deal with the middle east, Pakistan, Egypt and yes Europe all ready to erupt war/riots and total chaos. Oil is the nail in the coffin. And it is getting closer. The Italians are going to love that bid oil price, oh and Libya is going to implode again...The world is truly f*cked. But, we have top ranges kicking in, you got nice trades on short positions and narrow trading ranges = volatility/swing trades/scalping. Possible end yr rally if those insane Europeans can con the markets and prop Wall Street till the absolutely end game, which is the start of 2012

Sorry for dumb questions but can anyone explain for me how HYG and LQD work please? (ie: how their price are calculated, how are their relationship to equity market) And how is the ESZ1's price calculated?